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Comment by csomar | Hacker News Reader

I am not a tax specialist but from my understanding a non-profit is a for-profit that doesn't pay dividends. Why would the government care?

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No, a non-profit is one in which there are no shareholders. The non-profit entity can own a lot and be extremely successful and wealthy, but it cannot give that money to any shareholders. It can pay out large salaries, but those salaries are scrutinized. It doesn't prevent abuse, and it certainly doesn't prevent some unscrupulous person from becoming extremely wealthy with a non-profit, but it is a little more complicated and limiting than you would think. Also, you get audited with routine regularity and if you are found in violation you lose your tax-exempt status, but you still are not a for-profit.

Yes: non-profits usually have members, not shareholders.

And, most importantly: non-profit charities (not the only kind of nonprofit, but presumably what OpenAI was) are legally obligated to operate “for the public good”. That’s why they’re tax exempt: the government is basically donating to them, with the understanding that they’re benefiting the public indirectly by doing so, not just making a few people rich.

In my understanding, this is just blatant outright fraud that any sane society would forbid. If you want to start a for-profit that’s fine, but you’d have to give away the nonprofit and its assets, not just roll it over to your own pocketbook.

God I hope Merrick Garland isn’t asleep at the wheel. They’ve been trust busting like mad during this administration, so hopefully they’re taking aim at this windmill, too.

> God I hope Merrick Garland isn’t asleep at the wheel. They’ve been trust busting like mad during this administration, so hopefully they’re taking aim at this windmill, too.

Little chance of that as Sama is a big time Democrat fundraiser and donor.

So are Google and Facebook :shrug:

Can’t find a good source for both rn but this one has alphabet in the top 50 nationwide for this election: https://www.opensecrets.org/elections-overview/top-organizat...

edit: and Sam Altman isn’t exactly donating game changing amounts — around $300K in 2020, and seemingly effectively nothing for this election. That’s certainly nothing to sneeze at as an individual politician, but that’s about 0.01% of his net worth (going off Wikipedia’s estimate of $2.8B, not counting the ~$7B of OpenAI stock coming his way).

https://www.dailydot.com/debug/openai-sam-altman-political-d...

> So are Google and Facebook

When you see any numbers for corporations contributing to political campaigns, that's actually just measuring the contributions from the employees of those corporations. That's why most corporations "donate to both parties"--because they employ both Republicans and Democrats.

Has OpenAI been profitable so far? If not, is there any subtantial tax that you have to pay in the US as a for-profit organization if you are not profitable?

I’m not sure extreme wealth is possible with a non-profit. You can pay yourself half a million a year, get incredible kickbacks by the firms you hire to manage the nonprofits investments, have the non-profit hire outside companies that you have financial interests in, and probably some other stuff. But none of these things are going to get you a hundred million dollars out of a non profit. The exception seems to be OpenAI which is definitely going to be netting at least a couple people over a billion dollars, but as Elon says, I don’t understand how or why this is possible

Yes definitely that is the far majority. I actually had Mozilla and their CEO in mind when I was thinking of "extreme" wealth. Also I've heard some of the huge charities in the US have some execs pulling down many millions per year, but I don't want to name any names because I'm not certain.

In the USA, the salaries of execs of non-profits are publicly listed in their form 990s they file with the IRS.

Name names. We can look it up.

> No, a non-profit is one in which there are no shareholders.

Again, I am not a lawyer but that makes no sense. Otherwise, anyone can claim the non-profit? So clearly there are some beneficial owners out there somehow.

The nonprofit is controlled by trustees and bound by its charter, not shareholders. Any profit a nonprofit organization makes is retained within the organization for its benefit and mission, not paid out to shareholders.

A non-profit is a company that for accounting purposes does not have shareholders and therefore keeps nothing in retained earnings at the end of the period. The leftover money must be distributed (e.g. as salaries, towards the stated mission, etc.). Their financial statements list net profit for the period and nothing is retained.

The money doesn't have to be used. Many non-profits have very large balance sheets of cash and cash equivalent assets. The money just won't be paid out as dividends to shareholders.

Correct. They carry a net assets balance at the end of the period. But they do not retain earnings because there are no shareholders to pay out.

That's not correct, they also have tax advantages and a requirement to fulfill their charter.

Non-profits are tax-exempt, that's why they're carefully[1] regulated.

1: In principle; in practice, well, we'll see with this one!

Isn’t transferring all of your value to a for-profit company that can pay dividends, kinda the same thing?

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